Smart phones make the leap to the mainstream

By Wailin Wong
Chicago Tribune
February 27, 2011

CHICAGO — Ron Rakow had a cell phone but never owned a smart phone until a holiday promotion at U.S. Cellular caught his eye. He took the plunge in late December.

“It’s a computer,” Rakow, 44, said of his new HTC Desire. “I was thinking of going home and canceling my Internet service.”

Rakow recently went to a workshop at a U.S. Cellular store to get more comfortable with his phone and learn how to customize it. During the free one-on-one session, store employees walked him through using a navigation application, setting up a screen of speed-dial contacts and downloading an app that syncs with Apple’s iTunes on his home computer.

“This is a smart phone for dumb people,” Rakow joked.

Four years after Apple’s iPhone showed the world the potential of a powerful, fun-to-use mobile computer, wireless operators are looking to bring smart phones to consumers outside of the early adopter crowd.

At stake is the growing pot of data revenue that smart phones generate. Wireless data revenues totaled $46 billion in 2010, up from $41.5 billion in 2009 and $32.3 billion in 2008, according to industry association CTIA.

At the Consumer Electronics Show in Las Vegas early last month, T-Mobile USA Chief Executive Philipp Humm said smart phone penetration in the U.S. is just 31 percent of mobile consumers, leaving a wide playing field for carriers.

But catering to the mainstream requires different strategies than those used to woo early adopters, who are willing to pay premium prices and work out the kinks of a new product. Carriers are now offering smart phones at lower prices. These devices may lack the full processing power of the priciest gadgets, but they are positioned as entry-level products for younger users or customers who may be upgrading to a smart phone for the first time.

“Affordability is really critical to making sure we get market penetration,” Humm said at CES. Last year, T-Mobile launched four Android smart phones priced under $100 and introduced a $10 monthly data plan.

The growth potential for smart phone adoption is big. Research firm In-Stat released a report last week predicting that more than 50 percent of U.S. handset shipments will be smart phones by 2012. The 2010 percentage was 42.7 percent, a figure representing future sales to new and existing smart phone users.

“Prices have gone down for the data plans; they’re becoming more affordable,” said Allen Nogee, principal analyst at In-Stat. “Certainly the phone prices have dropped a whole lot. The operators are really pushing to have more volume.”

Demand for smart phones has also caught the attention of prepaid carriers, which in the past few years have been shedding their image of catering only to budget-conscious consumers or those with bad credit. Operators such as Virgin Mobile and Cricket Wireless have introduced Android smart phones and are offering competitively priced data packages without contracts.

“Within the prepaid space, you really are seeing what I would call a second wave of smart phone users now moving in,” said Bob Stohrer, vice president of corporate marketing at Sprint, which owns Virgin Mobile. “Those people ... weren’t early adopters and have been standing on the sidelines for a while, but now recognize that smart phones and the ways that people can connect have fundamentally changed.”

At Virgin Mobile, the $249.99 Samsung Intercept represents about 20 percent of the operator’s sales mix, Stohrer said, upending the traditional belief in the prepaid industry that customers would balk at handsets priced above $99.

Prepaid carriers historically have offered lower phone subsidies than their postpaid rivals, but no-contract subscribers are showing a willingness to pay more for sophisticated devices — a dynamic that’s boosting these companies’ ability to compete for smart phone users.

Cricket Wireless, for example, inaugurated its smart phone portfolio with the BlackBerry Curve in August and followed with two Android devices, including the Huawei Ascend, which costs $159.99. By the end of 2010, 9 percent of Cricket’s 5.3 million customers owned a smart phone.

“We saw that the demographic for prepaid and the demographic for smart phones was really a mass-market, value-driven demographic, much different than it was a few years ago,” said Matt Stoiber, Cricket’s vice president of devices.

Category: Android